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ICICI Securities Report
We model Asian Paints Ltd.'s FY25E to be impacted by:
a slowdown in industry growth rates after strong growth over FY21-H1 FY24;
increase in commodity prices after deflation in FY24; and
steep competitive pressures.
Asian Paints will have to make multiple tough decisions in FY25 to support either margins or market shares. While it needs to raise prices to pass on input inflation, it also needs to raise ad-spend and feet-on-street to drive growth. Its pricing difference also cannot be materially higher than new competitors, as large pricing gap may result in market share loss.
Asian Paints also needs healthy profitability in the decorative business to fund the investments in its new businesses such as Beautiful Homes/ Home Décor.
While launches at bottom-of-pyramid may result in higher volume growth, value growth may remain muted, in our view. We model earnings decline in FY25E (first time after FY09) as well as impact on market shares.
We reckon [comfortable] competitive equilibrium in paints is likely broken. Retain underweight on large cap paints. Maintain Reduce.
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